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Three weeks into 2013 and Wall Street's celebratory mood continues unabated, as the Dow Jones Industrial Average finished at a new five-year high, and the broad market rose 1%.

The rally was undeterred by poorly acting technology and financial sectors, which, in turn, were hurt by less than stellar fourth-quarter earnings reports. Stocks received a boost from a Republican proposal extending the federal debt limit by three months.

The market managed to push through a previous intraday high set last September, a bullish technical sign that increases the potential in coming weeks for another leg up from investors who fear being left behind after the 4% rise this year.

Last week, the Dow rose 1.2%, or 161 points, to 13,649.70, the highest close since December 10, 2007 and just 4% from its all-time high. The Dow is off to its best yearly start since 1997.

The Standard and Poor's 500 index gained 14, or 1%, to 1485.98, and is 5% below its all-time highs of 1565, reached in 2007. The tech-heavy Nasdaq Composite added nine points, or 0.3%, closing at 3134.71.

The market remains focused on what is and isn't coming out of Washington, says Cameron Hinds, a regional chief investment officer at Wells Fargo Private Bank. The end-of-week boost was prompted by talk of a bill from Republicans to push the debt-ceiling deadline to about mid-April, he says.

That would be a short-term answer, and "ultimately volatility is going to pick up as we get closer to the [late February] deadlines for the debt ceiling and federal budgetary spending reductions," Hinds adds.

With the market at highs, investors should beware the potential for a D.C.-based quick and nasty pullback, though that could come from much higher levels, given the strength of positive investor sentiment.

The market continues to defy the skeptics, and its technical patterns remain strongly bullish, says Andre Jude Bakhos, director of market analytics at Lek Securities. Those investors who dread getting in at a market top might soon overcome fears of growing underperformance, he adds.

AFTER THE TERRIBLE FOURTH quarter for Apple's stock, there's plenty of chatter about how cheap it looks. At Friday's close of $500, Apple is down 29% from its high of $702, hit on Sept. 19, and is—hard to believe—the fourth-worst performer in the S&P 500 since that day. Apple's market cap is now $470 billion, down from $626 billion.

Meanwhile, without any help from its biggest stock, the S&P 500 has rallied beyond its own Sept. 14 high. Had Apple's shares merely remained flat, the broad market could be approaching all-time highs, according to Bespoke Investment Group.

Money managers are befuddled. Why does Apple, with its unrivaled combination of earnings and brand power, trade significantly below the market multiple? It changes hands at a price-to-earnings ratio of 10.3 times consensus expectations of $48.49 per share in September-ending fiscal 2013. More importantly, the P/E multiple has been low for a while: 10 to 15 times throughout 2012.

"Everyone in the world knows about its products and the company," says Aaron Cohen, president of money manager Financial Partners Capital Management, which bought Apple shares last week. "Everyone loved it, yet it traded at 10 times….How could it be so undervalued?" he asks.

Cohen looked at the moves of highly popular mega-caps over the past two decades and found that when a company's stock-market capitalization neared 5% of the S&P 500 index's total market value, it typically marked a percentage high that wasn't subsequently regained. (See chart above.) This happened regardless of the industry, the expected rate of earnings growth, and where the company was in its cycle, he says.

Not only was Apple a mega-cap darling, one of few each decade, it was almost in an asset class of its own. So why has it stayed cheap?

That giant size might be to blame. Apple's inability to get its P/E above 15 last year was a case of a stock done in by its huge popularity, Cohen argues. At $700, Apple's market value was almost 5% of the S&P 500's.

Investors, particularly professionals, diversify their portfolios, and few are willing to commit more than 6%-7% of their portfolios to one stock, Cohen says. Not everyone can own Apple, and at a certain point, "there was nobody left to buy the stock" who didn't already have a full position, he adds.

Moreover, Cohen maintains, Apple's hitting $700 probably had little to do with P/E. Given its unrivaled popularity, he argues, the stock could have reached that level even if Apple had earned "only" $30 a share in fiscal 2012, instead of the $44.15 it did. An EPS of $30 would have awarded the shares a P/E of 23 times. "No one would have balked" at that, he says, because plenty of lesser technology companies sport much higher multiples. Apple is expected to report its fiscal first-quarter results Wednesday.

What about the future? Apple remains cheap. It has no debt, and 25% of its market value is cash—about $121 billion at the end of fiscal 2012. The P/E is 10. The company still makes great products. Hard to argue that it's anything but cheap. But in the near term, investors who were overweight Apple could still be unwinding their holdings, regardless of the low P/E.

The historical data on mega-caps don't indicate that Apple's stock price won't rise, but they do suggest that the market would have to be significantly higher for Apple to surpass its old high.

According to Cohen, the way to get the stock moving is via a large special dividend, something that Apple easily could afford. The low P/E shows that investors aren't giving it much credit for the cash it holds anyway, so the company might as well return it to shareholders, he contends. Cohen thinks Apple could easily part with $80 billion, or $85 per share, without hurting its share price. "As an Apple shareholder, if you give me cash, I might hold on to the stock, knowing that now Apple will be more aggressive in deploying cash to shareholders. On the other hand, if you are not returning cash to shareholders, why should the market give you credit for it?"

It's hard to argue with the company's results over the past 12 months under new CEO Robert Lynch. But we're going to try.

Under his tutelage, in late 2011, Lumber Liquidators purchased Sequoia, one of its major product suppliers in Asia. It was a savvy move and paid off as the savings flowed to the bottom line in 2012. That and other cost-cutting moves helped operating margins jump to an estimated 9% last year from 6.2% in 2011, estimates Stifel Nicolaus.

Same-store comparable sales gains soared to about 8% to 10% from 2% over the same periods. Last year, in quarter after quarter, the Toano, Va.-based firm topped analysts' EPS estimates by significant amounts. The Street expects earnings per share of $1.61 in 2012 and $2.02 this year, up from 93 cents in 2011.

With the U.S. housing market in recovery mode, investors have poured in, and the stock has quadrupled, to $56.08 from a low of $14 in September 2011, crushing the 27% rise in the broad market.

At this point, however, investors should ask if too much is baked into the stock price. By the second quarter of this year at the latest, the company will soon be lapping the big gross margin gains, about 1% to 1.5%, from the Sequoia acquisition. And those unusually high comp-store sales increases—12% in some quarters of 2012—are going to be tough to beat in 2013. Lumber Liquidators will have a hard time soundly surpassing EPS expectations, but the stock's lofty price indicates that investors have come to view beating them as normal.

Meanwhile, by almost any metric, Lumber Liquidators valuation is high and appears to be stretched. It trades at a P/E ratio of 28 times, roughly double its long-term earnings growth rate.